Five (5) reasons keeping records can benefit you

TALKING TAX

Sunday, February 17, 2013

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The March 15 Income Tax filing deadline is just a few weeks away and business operators should be completing preparations to submit their final Income Tax Returns for 2012 and Estimated Returns for 2013. While filing tax returns are important, business operators are also reminded that it is critical for them to keep records of their business activities, such as sales receipts, purchases invoices, payroll records, utility bills, transportation expenses, rent receipts, bank statements and all other business and administrative expenses.


Although business persons are not required to submit supporting records along with their Income Tax Returns, it should be noted that under the Income Tax Act they are required to maintain proper records, in English, for a minimum of six (6) years. The records should then be made available to the tax authority, if the person's income tax return is selected for an audit or if they are asked to verify their income or expenses. This is necessary as Jamaica, like many other tax jurisdictions, operate a self-assessment system. It is through periodic examination of records that a tax authority is able to verify the accuracy of a return filed by a taxpayer.


Whether a business is operated as a company, self-employed entity, partnership or any other type of organisation, good record keeping practices should be adopted for five main reasons:


REASON #1


Well-kept records may shorten the length of time that an audit takes to be completed.


Based on Jamaica's self-assessment system, if a business is selected for an audit, the business operator would be asked to produce records to verify the information filed on the Income Tax Return(s). Once the business person has proper records, then the tax auditor would be able to quickly examine the records produced in a timely manner, and make a determination on the accuracy of the Income Tax Return filed.


REASON #2


Well-kept records can mean tax savings.


Records can be used as a reminder of a person's deductible expenses and credits. It is only by keeping proper records of business expenses that there will be proof of the expenses incurred in carrying out the business operation. By doing this, business operators will not have to rely on their memory. This means that they will only pay what is due - no more, no less - as their records would remind them of all the expenses that they are entitled to claim against their income.


REASON #3


Good records can help verify all income and business expenses for tax audit purposes.


Without proper records a Tax Auditor may have to make a determination based on his or her "best judgement", of what value income and expenses may be, based on the size, type and location of a business. Also, in the absence of proper records, industry standards may have to be used as a guide in the audit.


REASON #4


Proper books and records provide an accurate picture of your business operations.


If this is the case, the Tax Auditor may not have to use an indirect method, such as your life style or net worth, to estimate your income and expenses. Your own books and records would be able to provide the Auditor with a true picture of your business operations.


REASON #5


Records will give better information about the financial position of a business.


With proper records, a business operator can identify areas for improvement and/or expansion. This will also aid business persons in securing financing for their business. In addition, through an analysis of records, it could help business operators to make an informed decision that they may need to change their business focus.


More information on record keeping and other tax issues may be obtained by calling Tax Administration Jamaica's Customer Care Centre at 1-888-TAX-HELP (1-888-829-4357) or visiting the website www.jamaicatax.gov.jm



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